May 29, 2014

Underwriting guidelines remain rigid on the conforming loans guaranteed by Fannie Mae and Freddie Mac, but lenders are becoming more accommodating on nonconforming, or jumbo, loans.

Over the last few months, lenders have begun approving loans for jumbo borrowers who don’t strictly meet the usual rules for, say, income documentation or credit score minimums, but can compensate for these shortfalls in other ways.

Jumbo loans are mortgages of $417,000 or higher in most areas; the nonconforming threshold is $625,500 in pricier markets like New York. Jumbos are typically issued to the most creditworthy borrowers and require higher down payments.

Peter Grabel, a senior loan originator with Luxury Mortgage in Stamford, Conn., describes the loosening as more of a common-sense approach, “not wild and crazy.” Lenders are “just sort of unwinding the things that might have been overly onerous,” he said.

For example, lenders typically require at least two years of tax returns to document the income of self-employed borrowers. Mr. Grabel said he recently had a client who had owned his own business for only a year, but was still able to obtain a loan because he had a solid track record working in the same industry and had significant funds on reserve.

Lenders have also been more willing to count capital gains from stock as income if borrowers who receive stock grants as compensation can show a consistent pattern of cashing them in, Mr. Grabel said.

Borrowers who don’t fit neatly within the usual guidelines but are otherwise qualified are an increasingly attractive market. “We’ve been in a bit of a down market, first with the drop in refis, and then the purchase market hasn’t picked up the way people expected,” said Jordan Roth, a mortgage specialist at the GuardHill Financial Corporation, a mortgage banker and brokerage in Manhattan. “So lenders are having to get a little bit more creative. They’re taking good, strong loans with quality borrowers who have compensating factors to overcome a challenge in credit, income or whatever.”

In New York City, more lenders are providing financing in buildings that are “nonwarrantable,” or ineligible for backing by Fannie Mae. Local portfolio lenders are financing sales in buildings where the sponsor still owns a significant share of the units, normally a disqualifying factor, Mr. Roth said. He also knows of lenders who will provide financing in buildings with up to 35 percent commercial space.

W. J. Bradley Mortgage Capital, a Colorado lender licensed in 37 states, is preparing to begin a program targeting well-qualified borrowers who aren’t served by the broader market, according to Michael Kime, the chief operating officer. These borrowers will include the self-employed, like “the guy who runs a company with 200 employees, and all his employees can get a loan but he can’t because his ability to document his income is impaired.”

The company will also target buyers who need financing in condo or mixed-use projects that are ineligible for backing by Fannie Mae, he said.

Private capital has little appetite for loans outside agency guidelines. W. J. Bradley is partnering with some funds on its new loan program, and hopes to re-engage private capital by creating what Mr. Kime called “responsible” loan products. “The majority of the industry is leaning on the qualified mortgage safe-harbor exemption,” he said, referring to new federal rules for qualified mortgages. “As you go outside the agency guidelines, you’re going to have whole new tiers of borrowers who don’t have access to credit if we don’t figure out how to get the private capital back in play.”